Well another financial year is rapidly approaching an end. There are a variety of stock market strategies to consider around this time of year that can have a financial benefit, tax benefit or both!
Tis the Season to Get Your Financial Affairs In Order
So what typically does June hold in store for the stock market investor?
One of the first things to consider is the seasonal impacts at this time of the year. Does the market typically rally into June or does it fall? Based on the chart below that shows the seasonal pattern for the All Ordinaries index over 26 years, June is typically a down month.
Strength in April and May gives way to weakness during June. In fact the market drops an average of 1.15% between the 6th June and 16th June with a probability of 77% that the market will be lower and the weakness continues right up to the end of June. That means that almost 8 out of every 10 years the market falls during June. It does not mean that this year the market will be lower, but the historical patterns certainly favour the downside. For the bulls things improve from early July onwards.
Protect Your Portfolio with a Hedge
If you are concerned about a fall in the value of your portfolio you can put in place a hedge. A hedge increases in value during a market fall which can offset any loss in your original portfolio. You can do this using options, warrants or CFDs. To protect your position you enter a position using options or CFDs that will increase in value if the market was to fall. This can be done by short selling CFDs or buying put options or warrants. Your portfolio will still drop in value if the market falls, but your hedge position will increase in value, offsetting the loss in your main portfolio. Rather than hedging every single share you own, it is usually easier to hedge on the underlying index. This involves selling the index with a CFD or using put options or warrants for downside protection. The purpose of this strategy is not to make money it is to minimise the impact of losses in your portfolio during a falling market.
Interesting Times
One possible explanation for the drop at this time of year could be selling by investors, associated with raising funds to prepay interest on margin loans or other investments. By prepaying a year’s interest the investor is able to claim the full tax deduction in this financial year. If you have a large tax bill coming up then this is one strategy that allows you to offset some of the tax and instead grow your investment portfolio using a margin loan or similar investment. In a similar way you can prepay your software and data fees for a year at MDS Financial and claim a tax deduction in this financial year.
By Jeff Cartridge
Education Manager
Tags: end of financial year, investing, MDS Financial, mds financial research
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